Country Cloud Trading CC v Mec, Department of Infrastructure Development

• Jurisdiction: South Africa
• Judge: Brand JA, Leach JA, Tshiqi JA, Theron JA and Saldulker JA
• Judgment Date: 26 November 2013
• Citation: 2014 (2) SA 214 (SCA)
• Docket Number: 751/12 [2013] ZASCA 161
• Hearing Date: 08 November 2013
• Counsel: LM Morrison SC (with X Stylianou) for the appellant. N Dukada SC (with B Shabalala) for the respondent.
• Court: Supreme Court of Appeal

Brand JA (Leach JA, Tshiqi JA, Theron JA and Saldulker JA concurring):

[1] The respondent is a Member of the Executive Council in the D province of Gauteng with responsibility for the provincial Department of Infrastructure Development, which was formerly part of the Department of Public Transport, Roads and Works (the department). The appellant is a close corporation, Country Cloud Trading CC (Country Cloud). The appeal originates from a building contract between the department and a construction company, Ilima Projects (Pty) Ltd (Ilima). In terms E of this contract Ilima undertook to complete the construction of the partially built Zola Clinic in Soweto at a contract price of R480 million. In order to comply with its obligations under the contract, Ilima borrowed R12 million from Country Cloud. In terms of the loan agreement between these two parties, Country Cloud stood to make a F profit of R8,5 million.

[2] After Country Cloud had paid the R12 million to Ilima, the department cancelled the construction contract, which ultimately led to the liquidation of Ilima. Following upon these events, Country Cloud instituted an action against the department in the South Gauteng High G Court, Johannesburg for delictual damages in an amount of R20,5 million, together with interest at 15,5%. In the event the matter came before Satchwell J who dismissed the claim with costs. The present appeal against that judgment, which has since been reported as Country Cloud Trading CC v MEC, Department of Infrastructure Development [2012] 4 All SA 555 (GSJ), is with the leave of the court a quo.

H [3] A proper understanding of the issues arising requires a broad outline of the background facts. What eventually proved to be a rather sad tale of woe for all parties concerned started on 10 May 2006 when the department awarded a tender to build the Zola Clinic in Soweto, which was designed as a 300-bed district hospital, to a joint venture of four I companies at a contract price of about R335 million. Ilima was one of the four companies in the joint venture. In terms of the ensuing contract, the project had to be completed by May 2008. But the joint venture

Brand JA (Leach JA, Tshiqi JA, Theron JA and Saldulker JA concurring)

never really got off the ground. In March 2008 Ilima's three partners A withdrew, which left it as the last contractor standing. At that stage only 20% of the hospital had been completed.

[4] The head of the department at the time, Mr Sibusiso Buthelezi, was then landed with the responsibility of appointing a contractor to complete the building project. The Departmental Acquisition Council B (DAC), which concerned itself with the procurement of goods and services for the department, recommended to Buthelezi that the contract should once again go through the tender process. On the other hand, the recommendation by senior officials of the department was that, due to the urgency of the situation, the completion contract should, without C further ado, be awarded to Ilima as the only surviving member of the joint venture. This is what Buthelezi then did. Although Buthelezi himself did not testify at the trial, it appears from the documentary evidence that he was of the view that, as the accounting officer of the department, he was entitled to override the advice of the DAC and that due to the exigency of the situation, he should do so. In motivating this D decision in subsequent correspondence, Buthelezi pointed out, for instance, that the people of Soweto were in dire need of a hospital which was destined to be completed by May 2008; that by that time only 20% of the work had been done; and that going out on tender was bound to give rise to further delay and additional costs.

[5] Ilima was confident that it was able to complete the construction of E the hospital on its own. Yet it needed immediate financial assistance in an amount of R12 million to do so and the department was clearly aware of this need. Hence the department made various concessions to assist Ilima in obtaining a loan so as to facilitate the expeditious completion of F the hospital. First the department undertook, as part of the construction contract, to pay Ilima a so-called 'site re-establishment and mobilisation fee' equal to 5 % of the contract price of R480 million — that is, R21,5 million — within 30 days of concluding the contract. Secondly, the department allowed its managing agent, Tau Pride (Pty) Ltd (Tau Pride), to give a formal undertaking to Country Cloud that the loan of G R12 million be paid directly to it out of the site rehabilitation and mobilisation fee of R21,5 million when Ilima became entitled to this fee.

[6] On this basis Country Cloud agreed, in terms of a loan agreement with Ilima, to advance an amount of R12 million to the latter to perform its obligations under the completion contract. In turn, Ilima undertook H to repay the amount of R12 million when the site rehabilitation and mobilisation fee became payable. In addition, Country Cloud would receive a handsome profit of R8,5 million which Ilima undertook to pay by 1 May 2009. The construction contract for the completion of the Zola Clinic, which ended up as the source of this litigation, was then concluded between Ilima and the department on 4 August 2008. It soon I became known as 'the completion contract'. Following upon the conclusion of the completion contract, Country Cloud advanced the R12 million to Ilima.

[7] Trouble started on 4 September 2008 when the department cancelled the completion contract before it had made any payments J

Brand JA (Leach JA, Tshiqi JA, Theron JA and Saldulker JA concurring)

A thereunder, either to Ilima or, via Tau Pride, directly to Country Cloud. This despite a certificate by the principal agent in terms of the construction contract, that an amount of R21,5 million became due and payable by the department. The comprehensive letter of cancellation on behalf of the department was written by Buthelezi. In essence it relied on B two misrepresentations by Ilima prior to the conclusion of the completion contract, which were alleged to be both intentional and material. The first related to a representation conveyed through a tax clearance certificate from the South African Revenue Service (SARS), to the effect that Ilima had complied with all its tax obligations and was in good standing with SARS. This was alleged to be untrue in that, at the time, C Ilima's tax affairs were in serious disarray. The second was that it had received a level 8 accreditation from the Construction Industry Development Board.

[8] Subsequently, as I have indicated by way of introduction, Country Cloud had been liquidated for being unable to meet its financial D obligations to its creditors. This happened in March 2010. Prior to its liquidation, summons was issued on behalf of Country Cloud against the department for contractual damages in an amount of R1,4 billion on the basis of its alleged unlawful repudiation of the completion contract. What happened to this claim is not entirely clear. Apparently it went to E mediation, which proved to be unsuccessful, but whether it was then pursued further and, if not, why not, we simply do not know.

[9] Country Cloud's particulars of claim reveal clear difficulty in the formulation of a claim in delict. As it happened, the basis finally relied upon was only introduced by way of an inelegantly drafted amendment F shortly before Country Cloud closed its case in the court a quo. Not revealing the scars of amendments, the formulation eventually followed the following lines:

(a)

The department owed Country Cloud a so-called 'duty of care' not to cancel the completion contract without any lawful ground prior to payment of the site rehabilitation and mobilisation fee to Ilima. G (The reason for 'so-called' is to highlight the confusion revealed by the reference to 'a duty of care', to which I propose to return.)

(b)

On 4 September 2008 the department intentionally, and, in breach of its duty of care, unilaterally cancelled the completion contract without any lawful grounds.

(c)

H But for the conduct of the department, Ilima would have received payment of an amount of R21,5 million and would have been able to pay the R12 million and R8,5 million which it owed to Country Cloud.

[10] In the original version of its plea the department persisted in the defence that the completion contract had been validly cancelled on I grounds of Ilima's material and intentional misrepresentations. As in the cancellation letter, the two misrepresentations relied upon again related to the content of the tax clearance certificate provided by Ilima and the representation that Ilima had been accredited by the Construction Industry Development Board with a level 8 rating. Moreover, and in any J event, the department denied that it was liable in delict to Country

Brand JA (Leach JA, Tshiqi JA, Theron JA and Saldulker JA concurring)

Cloud for the damages claimed. Shortly before the commencement of A the trial the department amended its plea so as to introduce a further defence. According to this new defence the completion contract was in any event invalid because 'the tender awarded to Ilima was contrary to the procurement regulations and policies of the . . . Department' in that 'it was not advertised and [did not invite] . . . other companies to bid for the tender; and it was not evaluated and adjudicated by the appropriate B internal structures of the department'.

[11] Prior to the commencement of the trial the department admitted that Ilima possessed the required...